A Mixed Bag

Holding above US$ 100 for most of this year, South East Asia’s thermal coal could well be ready to re-test the record US$ 192.8 level of July 2008 in the coming years. Indonesia, Thailand and Vietnam will be counting on billions of dollars in new coal revenues from the renewed boom. But they will also be grappling with uncertainties brought on by their increased economic dependence on, and the environmental impact of mining and handling, coal.

The long-term cost of coal

Indonesia’s rich coal reserves have emerged as the focus of a protracted struggle between the industry and environmental groups.

Southeast Asia will also have to compete for coal against China and India, as well as the US, Japan and South Korea. Political tensions over oil and gas supplies can only grow if Southeast Asia is forced to compete for coal against its bigger rivals.

Against the financial might of its far larger competitors, Southeast Asia’s growing coal dependence will leave its economies vulnerable to future supply and price shocks.

Indonesia

Indonesia’s coal output is expected to rise to between 325 million and 350 million t this year from around 300 million t in 2009, according to the Indonesian Coal Mining Association. Indonesia exports the bulk of its coal output, making it an increasingly valuable foreign exchange earner.

However, under pressure from local and international green groups, Indonesia recently imposed a moratorium on deforestation, passed a new environmental law and begun classifying areas for mining and forest reserves. The Indonesian Coal Mining Association has asked the Government to clarify these rules with the view to reducing their restrictions on mining activities.

Rising demand for coal

Another issue is Indonesia’s growing domestic electricity demand. The Government has announced that miners will have to set aside a certain quantity of their coal output for Indonesia’s power companies and cap exports at 150 million tpa.

However, analysts doubt Indonesia will be able to hold down its export level at 150 million tpa amid rising international prices and strong global demand.

In a report, the Bank of America-Merrill Lynch said the Government is unlikely to succeed in curbing Indonesia’s growing illegal export of thermal coal, which it estimates is running at around 50 million tpa.

Vietnam

Vietnam is still a net exporter, but has seen its export volume decline steadily. The country is facing a coal conundrum as it welcomes the rising export revenue but fears the prospect of further production decline and the growing domestic demand for power generation.

Coal consumption in Vietnam has been rising rapidly in recent years. The Government has warned that the country could face a power shortage of close to 1 TWh with electricity consumption growing by up to 18%/year.

Thailand

Coal is expected to provide an increasing share of Thailand’s power supply.

Banpu’s equal joint venture with CLP Powergen is building a 1400 MW coal-fired power plant and it is likely to succeed in capturing Centennial Coal, an Australian coal miner, for US$ 2 billion.

While a producer, Thailand continues to import a sizeable amount of coal for power generation. Last year, its coal import bill rose by 3.5% to Baht 37.7 billion to account for about 5% of its total Baht 764.8 billion in energy imports, according to the Energy Policy and Planning Office.

Malaysia

Malaysia may face power shortages within five years unless it starts building new power plants, including coal-fired, from next year, warned Che Khalib Mohamad Noh, CEO of Nasional Bhd (TNB). The country is facing financial, environmental and political hurdles to expanding its power capacity.

Malaysia’s new five year infrastructure plan forecasts the country’s power demand to rise 5%/year from 2011 to 2015 as the economy grows by an average of 6%/year.

As power demand rises by a compounded 22% over that period, the reserve margin will decline and will fall below the safe level of 20%, said Che Khalib.

In June, the Malaysian prime minister, Najib Razak, said the Government is planning to invest a total of Ringgit 7 billion to build two new coal-fired power plants of 800 - 1000 MW capacity each.